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Mitigating Accounting E&O Risks with High-Profile, High Net Worth Clients


Incorporate Risk Management Measures to Stem E&O ClaimsIncorporate Risk Management Measures to Stem E&O Claims

In our previous article, we discussed two emerging risks for accountants, including the increased exposures that come with dealing with high-profile, high-wealth clients. Here, we’re providing you with several risk management steps to help mitigate the potential for E&O/professional liability exposures.

  • Assess whether you want an individual as a client. Consider the reputation and integrity of the client to be engaged, the nature and source of the engagement, the risks associated with a relationship with the client and with performance of the engagement before taking on the client.
  • Be sure to always employ the use of a comprehensive engagement letter. A good engagement letter specifically identifies the services your firm will provide, as well as those services which are you are not providing. Also, make sure that fees are properly outlined. Clients will often have differing views about the fees that are appropriate for an engagement. Whatever is agreed upon, make sure everything is clearly stated in relation to the scope, nature and complexity of an engagement and any other matters relevant to fees to help avoid misunderstandings.
  • Speak directly with the client. Be sure to develop a relationship directly with the client in lieu of working with an intermediary. This will help you establish clear communication and recommendations. This will also help protect you in the event intermediaries commit a violation or embezzlement.
  • Document all conversations and agreements in writing. Be sure a paper trail exists as this will serve as a critical element in your defense should an issue arise.
  • Do not accept any limited power of attorney to disburse funds. In addition, if you are responsible paying bills, ensure that the funds are deposited into a separate account, which is zeroed out monthly and that you do not have access to master accounts.
  • Make sure you are not receiving statements for any account you’re not contractually responsible for managing.
  • Observe any red flags that may indicate the client appears to be living outside their financial objectives. This may be difficult, however, recognizing these red flags is important and will provide insight as to whether or not to terminate a relationship.
  • Let your client immediately know of any financial discrepancies. Once again, communication should be direct with the client and not with an intermediary. Any discrepancy in reconciliation or unusual withdrawals or transfers should be identified.

At Axis Insurance Services, we specialize in Errors & Omissions/Professional Liability insurance coverage for accountants and accounting practices including for forensic accountants, tax and compliance specialists, business evaluation specialists, those who perform audits, do SEC compliance work and others. E&O insurance will protect your firm against claims that involve allegations that the work performed or services provided caused your client to suffer a financial loss. Contact us at (877) 787-5258 to discuss your E&O insurance and how we can best protect you.

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Blogged on: May 18, 2015 by Mike Smith
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